A coal merchant holds up a lump of coal for the camera. REUTERS/Nigel Roddis

U.S. coal companies have been hit hard by a decline in demand, arising in part from competition from cheap natural gas and a weaker economy. They have also blamed tougher environmental rules for rising costs.

The deep commodity pricing trough and demand destruction could lead to one or more bankruptcy filings in the domestic coal industry, the Fitch credit ratings agency warned on Wednesday.

“Two coal producers (James River Coal Corp. and Xinergy Corp.) have significant default risk based on the secondary market trading prices of their securities,” Fitch said in a report, adding that it has an overall negative outlook for the coal industry this year.

Since 1994, there have been 11 mining company defaults among producers with least $25 million in assets as of their bankruptcy filing date. Patriot Coal Corp., which filed for bankruptcy in 2012, was more than 11 times the size (in terms of assets) of the next largest defaulted coal company.

The most recent coal company bankruptcy filing, America West Resources Inc., occurred on Feb. 1, 2013.

U.S. coal production, down almost 7 percent, fell almost everywhere. Central Appalachia production decreased significantly, by 16 percent, followed by a 9 percent production decline in Powder River Basins.

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And more trouble lies ahead. A number of old, relatively dirty coal-fired plants are scheduled to be shut down by the end of 2014 to comply with regulations from the Environmental Protection Agency.

Arch sells thermal coal, which is used to generate electricity, and metallurgical coal, a steelmaking raw material. Domestic thermal coal demand tumbled last year amid mild weather and as prices for natural gas, a competing fuel, dropped to the lowest point in a decade.

“2012 could well prove to be at the trough,” Arch’s Chief Executive John Eaves said on the earnings conference call. “Global benchmark metallurgical prices declined 50 percent since their peak a year-and-a-half ago while U.S. thermal coal consumption declined to levels we haven’t seen since the mid-90s.”